Weighing The Pros And Cons Of Investing In Gold
Considering the fact that gold is one of the longest running investments in the world, it is strange how few people currently hold some in their portfolios. As precious metals go gold reigns king, giving many investors an opportunity to stock up on one of the world’s most natural savings accounts. As any investment goes, everything that shines isn’t always gold.
Gold has many attractive qualities for any potential investor. As stated above, it is one of the oldest investments in the world meaning it has a plethora of data that financiers could use to predict its future. The supply of gold is also finite, there will only ever be so much. While miners can pull more from the Earth, the process is time-consuming and expensive, giving more value to the gold already in circulation.
While gold certainly is a solid investment, it does have its downsides. Gold has never been known to be a volatile mover, for better or for worse. While some buyers may view this in a positive light others may be looking for more explosive growth. Gold is also a physical asset and many vendors require storage, adding another layer of work to your investment. While gold has negatives, the positives are what makes it shine so bright and what attracts so many investors to its potential.
5 Key Benefits Of Investing In Gold
There are many factors that play into gold’s role as a reliable long term investment. Some of these elements truly separate gold from both other precious metals and other investment opportunities:
- History: As we touched on earlier in this article, gold is one of the oldest investments in history. Historians project that humans have been mining gold for well over 7,000 years and saving it to trade for over 5,000. While we don’t have trade data for the first tribes to mine the metal thousands of years ago, we do have more records on gold than any stock currently on the market. This deep and rich history gives financiers confidence and security in their purchase. While there are other opportunities to grow wealth, they are all much newer than the precious metal. Choices like stocks, bonds and even cryptocurrencies have nothing on the incredibly long timeline of gold. While different forms of investment may come and go, speculators say gold is here to stay.
- Tangibility: Gold may be like stock in that it gains and loses value with the market, but one of the big differences is that you can hold a piece of gold in your hands. No matter how many stocks of Apple you own, Tim Cook will never send you a bushel as a placeholder. Gold is unique in its tangibility, investors have the rare opportunity to buy and hold actual physical gold in their own possessions. This makes gold a safe haven investment for many long term investors or anyone looking to maintain some form of independence in their wealth. Many firms or wealth management companies require their customers to have an online profile as well. This is not always the case with gold, as you don’t need a password or login to open up the safe hidden in your closet. Simplicity is another benefit of gold, you can literally buy it and throw it in your personal vault! No other form of investment has this level of tangibility and ease, giving any potential buyer the ability to feel like they really are rich!
- Hedging Against Inflation: As stated before, gold isn’t a traditional investment wrapped up in an index fund. While the stock market tends to move as a single unit, with a majority of stocks moving in the same general direction at any given time, gold sits comfortably outside the traditional markets. When the market hits a volatile period, gold’s price isn’t shaken too heavily. According to Russ Koesterich, investment firm BlackRock’s Global Allocation Funds manager, periods of deep uncertainty are the exact time to turn to gold. He states that while gold is not a perfect hedge against an ever volatile market, it is a means of limiting potential losses gained from said turbulence. Koesterich goes on to say that while the price of the dollar may be confined, real rates are negative and this should not leave any investor feeling hopeful about the short term future of stocks. Currently, gold is challenging the level of the dollar. If you’re looking to add a piece of security into your current portfolio, invest in gold.
- Portfolio Diversity: Gold has previously moved in the opposite direction of the U.S. dollar, leading many to believe it is a good means of hedging against inflation. Investing in gold and hedging against inflation are both done through portfolio diversity, owning enough different investments to not be swept away by a single bad market. Some investors diversify their holdings with government issued bonds, but managers say this is not enough. Other means of diversity could include other precious metals such as silver. While silver has an intrinsic value similar to gold, it does not retain the same value as investing in gold. Having a low correlation with other assets in its class, it’s clear to see that good portfolio diversification comes when a buyer invests in gold.
- Real World Usage: One of the greatest differences between gold and its stock counterparts is its real world usage. Investors all around the world find solace in the fact that there is a real world use for the material gold they own. Out of the many uses, miningforschools.com highlights the most important and most common. Obviously, the first thing that comes to anyone's mind when thinking of the uses of gold is jewelry. Gold used in jewelry has been around for about 5,000 years and looking at its modern day use this aspect of the precious metal won’t go away anytime soon. Finances and investing have been another key player in the history of gold as it was a tool for investments before paper currencies was an idea. Many major kingdoms in history have used gold as a “standard” to base their currency off of. Speaking of, it was only until recently that the government of the United States stopped using the “gold standard” as a means of influencing the value of their money. Getting into more tangible uses, we can see gold’s popularity in both dentistry and medicine. Gold as an element is non-allergenic, making it great for oral use as a filler. It is also great in medicine in treatment of very specific diseases. A very new use, gold is pivotal in aerospace technology. In electronics as a whole, gold is an invaluable conductor that allows energy currents to flow freely from one location to another. Investing in gold is not only a good financial decision, but a safe one. Prospective buyers can put their investment to real world use if push comes to shove.
The Downsides To Owning Gold
The upsides to buying are numerous and purchasers have plenty of reasons to invest in gold. While gold is a solid investment for anyone looking for a safe and reliable performance in the market, there are areas where other investments outperform the yellow metal.
- Physical Retention: While many see gold’s tangibility, the ability to own and feel it in your own hands, as a positive others see it as a negative. When you buy physical gold, you will also need to store it somewhere. This can be an added layer of difficulty as buyers will either need to pay a storage fee to their wealth manager or they will need to locate storage themselves. If you can hold something in your hands, everyone else can too. This means that if you hold gold privately at home or another storage facility, it can in theory be stolen from you. This is not a factor when it comes to stocks that are bought and sold on an electronic exchange board that marks every transaction. Exchange traded funds are another option for those looking to participate in the modern day gold rush, but even they have management fees or a storage fee.
- Ease Of Liquidity: Gold is expensive to trade, coming in currently at $1,722.00 an ounce. This is very pricey for entry level investors. To buy the smallest quantity of gold you’ll need nearly $2,000, a price point much higher than a traditional $50 or even $100 stock. Gold is also difficult to liquidate, high dollar amounts mean buyers need a significant amount of capital in order to make a move. Because gold is held physically it can’t move as fast as a stock traded online or over an electronic exchange board. Exchanging gold for cash can also come with some hefty transaction fees, discouraging the everyday buyer from trading frequently. People can invest in gold buying ETFs but then they’re losing the fun of getting the physical metal in their possession.
- Volatility; Or Therefore Lack Of: Bitcoin, Ethereum and other cryptocurrencies have had a drastic rise in popularity recently. Bitcoin, namely, has seen a rise in its price unlike any other investment in the last couple of years, going from roughly $7,000 to $30,000 in a single year. This growth is explosive, market changing and incredibly volatile; all words you would never use to describe gold. Nicolaj Sebrell writes for “This Is Money” that due to the rise of cryptocurrency, people investing in gold are looking for stability more than anything. While dogecoin may make a millionaire out of any of us, grandpa’s two ounces of shiny silver won’t. Gold has never been known to make anyone a millionaire overnight, unless you found it in the ground. Gold remaining stable and secure can be a turn off, but to many it is the exact reason to buy in.
- Returns May Not Be The Best: A return on investment is one of the key principles of investing: hopefully you take more money out than you had initially put in. Gold is a safe and reliable investment, but is it the most lucrative? The answer to that can sometimes be no as many investors feel that they would have had a greater return on their initial investment had they gone elsewhere. This can be true as gold does not pay dividends. If you were to own common stock, many companies give their shareholders the option of receiving dividends. Gold doesn’t have this choice, leaving some financiers feeling shorted on their long-term returns.
Gold is one of the world’s most stable and reliable investments out there. With thousands of years of history backing it up, it is easy to see why anyone looking to secure their own financial future would turn to the yellow metal. It may be soft, but its returns are solid.
History isn’t the only reason to buy gold, the world’s most famous metal is one of the only IRA eligible investment opportunities you can hold. Whether you have a safe at home or pay for storage halfway across the country, you can own an actual tangible amount of gold. You can even go to websites like birchgold.com and buy different weights of gold, perfect for investors at every level. Gold is simple, it is quite literally a shiny metal that you can hold in the palm of your hand. Simplicity is an attractive quality for financiers, the market is complicated enough. Another great element of the 79th element on the periodic table is its inherent ability to hedge the market. When the dollar goes low, gold tends to go high. Buying precious metals such as gold is a great way to keep a diverse portfolio, something very important according to any banker worth their salt.
Whether you’re looking for a unique investment opportunity or just want to feel like an old prospector with an ounce of gold in your hands, investing in gold is reliable and secure.
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